NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investing in Fixed Income Securities (NISM XXI-A)
A bond with a face value of Rs 1,000 pays an annual coupon of Rs 80 and is currently trading in the market at Rs 1,000. What is its current yield?
The current yield is 8.0%. It is computed by dividing the annual coupon of Rs 80 by the market price of Rs 1,000. Since the bond trades at its face value, the current yield equals the coupon rate of 8 percent.
- A6.0%
- B8.0%Correct
- C10.0%
- D12.5%
Explanation
Current yield = annual coupon / current market price = 80 / 1,000 = 8.0%. Because the bond trades at par, current yield equals the coupon rate. 12.5% results from inverting the ratio (1,000/80), which is wrong.
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